EXHIBIT 99.1
News Release
(LOGO)
CORRECTIONS CORPORATION OF AMERICA
Contact: Karin Demler: (615) 263-3005
CORRECTIONS CORPORATION OF AMERICA
ANNOUNCES 2005 THIRD QUARTER FINANCIAL RESULTS
NASHVILLE, TENN. - NOVEMBER 3, 2005 - CORRECTIONS CORPORATION OF AMERICA (NYSE:
CXW) (the "Company") today announced its financial results for the three- and
nine-month periods ended September 30, 2005.
FINANCIAL REVIEW
THIRD QUARTER OF 2005 COMPARED WITH THIRD QUARTER OF 2004
For the three months ended September 30, 2005, the Company reported net income
available to common stockholders of $20.8 million, or $0.52 per diluted share,
compared with net income available to common stockholders of $17.0 million, or
$0.43 per diluted share, for the three months ended September 30, 2004, an
increase in diluted earnings per share of 20.9%.
Operating income for the third quarter of 2005 was $48.7 million compared with
$42.5 million for the third quarter of 2004. EBITDA for the three months ended
September 30, 2005, increased 13.5% to $63.8 million, compared with $56.2
million for the same period in 2004. The financial results for the three months
ended September 30, 2005, included the impact of a new management contract with
the Federal Bureau of Prisons ("BOP") at the Company's Northeast Ohio
Correctional Center that commenced in June 2005, as well as increased inmate
populations at a number of the Company's facilities, including the Leavenworth
Detention Center, Lake City Correctional Facility, Houston Processing Center,
Diamondback Correctional Facility, and Prairie Correctional Facility.
Adjusted Free Cash Flow increased 46.8% to $43.6 million during the three months
ended September 30, 2005, compared with $29.7 million generated during the same
period in 2004, primarily due to the increase in net income, as well as a
decrease in facility maintenance capital expenditures.
NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 2004
For the nine months ended September 30, 2005, the Company generated net income
available to common stockholders of $26.7 million, or $0.67 per diluted share,
compared with $46.2 million, or $1.18 per diluted share, for the nine months
ended September 30, 2004. Financial results for the first nine months of 2005
included a pre-tax charge of $35.3 million for refinancing transactions
completed during the first and second quarters. Earnings per diluted share
excluding this special charge amounted to $1.22 per diluted share.
Operating income for the first nine months of 2005 decreased to $126.5 million
compared with $128.5 million for the first nine months of 2004. However, EBITDA
adjusted for special items ("Adjusted EBITDA") increased for the nine months
ended September 30, 2005, to $170.4 million compared with $168.0 million during
the same period in 2004. Depreciation and amortization, which impacts operating
income but not EBITDA, increased $4.2 million primarily as a result of the
depreciation and amortization of recently completed facility expansion projects
and investments in technology.
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10 Burton Hills Boulevard, Nashville, Tennessee 37215, Phone: 615-263-3000
CCA 2005 Third Quarter Results
Page 2
Adjusted Free Cash Flow increased during the first nine months of 2005 to $86.7
million compared with $82.5 million during the first nine months of 2004.
Adjusted Free Cash Flow was favorably impacted by a $10.8 million reduction in
maintenance capital expenditures and was negatively impacted by an increase in
cash taxes paid, for the previously disclosed repayment during the first half of
2005 of approximately $15.0 million in taxes associated with excess refunds
received by the Company in 2002 and 2003.
Earnings Per Diluted Share Excluding Special Charges, EBITDA, Adjusted EBITDA
and Adjusted Free Cash Flow are non-GAAP financial measures. Please refer to the
Supplemental Financial Information and related note following the financial
statements herein for further discussion and reconciliations of these measures
to GAAP financial measures.
OPERATIONS HIGHLIGHTS
For the three months ended September 30, 2005 and 2004, key operating statistics
for the continuing operations of the Company were as follows:
========================================================================================
THREE MONTHS ENDED SEPTEMBER 30,
Metric 2005 2004
- ----------------------------------------------------------------------------------------
Average Available Beds 69,236 64,933
Average Compensated Occupancy 92.7% 95.1%
Total Compensated Man-Days 5,902,426 5,683,832
Revenue per Compensated Man-Day $ 50.82 $ 48.99
Operating Expense per Compensated Man-Day:
Fixed 28.17 27.75
Variable 9.27 9.09
------------- -------------
Total 37.44 36.84
------------- -------------
Operating Margin per Compensated Man-Day $ 13.38 $ 12.15
============= =============
Operating Margin 26.3% 24.8%
========================================================================================
Operating margins increased from 24.8% during the third quarter 2004 to 26.3% in
the third quarter 2005. The increase in margins from the prior-year period was
substantially the result of the aforementioned higher inmate populations at the
Northeast Ohio Correctional Center, Houston Processing Center, Leavenworth
Detention Center, Prairie Correctional Facility and Diamondback Correctional
Facility. The Company did experience year over year population declines at
several facilities including the Florence Correctional Center, San Diego
Correctional Facility and Otter Creek Correctional Center, which somewhat
reduced the amount of the increase in operating margin. The Company discloses a
complete listing of occupancies by facility in its Supplemental Financial
Information posted on its website at www.correctionscorp.com.
Total revenue for the third quarter of 2005 increased 6.9% to $304.4 million
from $284.8 million during the third quarter of 2004, as total compensated
man-days increased to 5.9 million from 5.7 million compensated man-days, and as
revenue per compensated man-day increased to $50.82 from $48.99, an increase of
3.7%. Despite the increase in compensated man-days, average compensated
occupancy for the third quarter of 2005 decreased to 92.7% from 95.1% in the
third quarter of 2004. A significant factor affecting the decline in occupancy
percentage was an increase in the previously reported design capacities of a
number of facilities based on the nature of the customer utilizing the
facilities. These
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CCA 2005 Third Quarter Results
Page 3
reconfigurations are typically completed with minimal capital outlays. Excluding
these changes in design capacity, average compensated occupancy for the three
months ended September 30, 2005, would have been 95.5%.
Fixed expenses for the three months ended September 30, 2005, increased to
$28.17 per compensated man-day compared with $27.75 per compensated man-day
during the same period in 2004, an increase of $0.42 per compensated man-day.
The increase in fixed expenses per compensated man-day was primarily the result
of an increase in salaries and benefits of $0.28 per compensated man-day, as
well as an increase in utilities of $0.12 per compensated man-day resulting from
increasing energy costs. The increase in salaries and benefits was driven by
annual pay increases, and the effects of initial staffing for the new contract
at the Company's Northeast Ohio facility. The increase in salaries and benefits
was mitigated by successful cost containment efforts in employee medical and
workers' compensation expenses across the portfolio.
Variable expenses for the third quarter of 2005 increased to $9.27 per
compensated man-day compared with $9.09 per compensated man-day during the third
quarter of 2004, an increase of $0.18 per compensated man-day. The increase in
variable expenses per compensated man-day resulted primarily from an increase in
travel expenses at several facilities affected by Hurricane Katrina and
Hurricane Rita, as well as the temporary transfers of personnel to assist with
the influx of inmate populations at several facilities, including at the
Company's Northeast Ohio Correctional Center, Diamondback Correctional Center,
and Prairie Correctional Facility. These increases were partially offset by a
reduction in legal expenses resulting from the successful settlement of a number
of outstanding legal matters.
BUSINESS DEVELOPMENT UPDATE
In July 2005, the Company announced its intention to cease operations at its T.
Don Hutto Correctional Center, effective early September 2005. However, during
September the facility housed inmates from the Liberty County Jail, a facility
the Company manages in Liberty, Texas, on a temporary basis due to evacuations
caused by Hurricane Rita. Although the Liberty County Jail sustained no property
damage, inmates were held at the T. Don Hutto facility until power and other
services were restored in October 2005.
On October 20, 2005, the Company agreed to provide temporary emergency housing
for approximately 1,200 detainees from the Federal Bureau of Immigrations and
Customs Enforcement ("ICE") housed in government detention facilities throughout
the state of Florida due to the anticipated arrival of Hurricane Wilma and the
emergency evacuation of all ICE detainees in Florida. The Company began
receiving these detainees on October 20, 2005, and initially housed
approximately 600 detainees at its Florence Correctional Center and
approximately 600 detainees at its T. Don Hutto Correctional Center. The
detainee populations have already begun to decline, and the Company currently
expects these detainee populations to be returned to ICE by the end of 2005. The
Company is currently reconsidering its decision to close the T. Don Hutto
facility following the removal of these detainees based on potential
opportunities to utilize the facility.
On October 21, 2005, the Company entered into a new agreement with the state of
Idaho to house a portion of the State's inmates at the Company's Prairie
Correctional Facility. Under the new agreement, the Company will manage an
estimated 300 inmates at the 1,550-bed facility. This facility currently houses
approximately 1,100 inmates from Minnesota, Washington and North Dakota. The
terms of the contract include an initial two-year period and may be renewed for
additional one-month or one-year
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CCA 2005 Third Quarter Results
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periods. On October 31, 2005, there were 1,440 inmates at the Prairie facility.
The Company currently manages approximately 1,200 inmates for Idaho at the Idaho
Correctional Center in Boise, Idaho.
In October 2005, the Company entered into an agreement with the state of Hawaii
to house up to 140 female inmates at the Otter Creek Correctional Center. The
terms of the contract include an initial one-year period, with two one-year
renewal options. The facility began receiving Hawaii inmates in September 2005
under a 30-day contract completed in September 2005. As of October 31, 2005, the
Company housed approximately 80 Hawaii inmates at this facility.
On September 15, 2005, the Company announced that Citrus County renewed its
contract for the continued management of the Citrus County Detention Facility.
The contract has a ten-year base term with one five-year renewal option. The
terms of the new agreement include a 360-bed expansion that is expected to
commence during the fourth quarter of 2005 and be completed during the first
quarter of 2007. The expansion of the facility, which is owned by the County, is
currently anticipated to cost approximately $18.5 million and will be funded by
the Company utilizing cash on hand. If the County terminates the management
contract at any time prior to twenty years following completion of construction,
the County would be required to pay the Company an amount equal to the
construction cost less an allowance for amortization over a twenty-year period.
Commenting on the Company's financial results, President and CEO John Ferguson
stated, "As anticipated, our third quarter results reflect the impact of the new
contract from the Federal Bureau of Prisons at our Northeast Ohio facility, as
well as the effect of higher inmate populations at a number of our recently
completed facility expansions including Lake City, Houston and Leavenworth. In
addition, we continue to benefit from expanding populations at a number of our
facilities under existing contracts including our Prairie and Diamondback
facilities."
Ferguson continued, "Looking at the macro environment for our business, we
continue to see an expanding need for prison capacity in the face of ongoing
supply constraints. For example, there has been considerable public discussion
on the part of Homeland Security regarding the need to tighten and refine border
enforcement efforts, which we believe is a prime example of such potential
demand. We are encouraged by President Bush's signing of the 2006 Homeland
Security Appropriations Act, which provides for a $2.4 billion increase to the
budget for the Department of Homeland Security and includes funding for 1,000
new border patrol agents, as well as $90 million for detention beds. In
addition, there are a number of specific opportunities we are pursuing,
including the 1,200-bed request for proposal from the Federal Bureau of Prisons.
Overall, we remain optimistic about our prospects for the remainder of 2005 and
for 2006."
GUIDANCE
The Company expects diluted earnings per share for the fourth quarter of 2005 to
be in the range of $0.55 to $0.58, resulting in guidance for the full year EPS
in the range of $1.77 to $1.80 excluding expenses associated with debt
refinancing transactions ($0.55 per diluted share for the nine months ended
September 30, 2005). Although the accounting for share-based payments for the
implementation of the Statement of Financial Accounting Standards No. 123R has
been delayed until 2006, the Company's full year guidance for 2005 includes
expenses totaling approximately $0.03 per diluted share, net of taxes, for the
amortization of restricted stock issued to employees who have historically been
granted stock options.
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CCA 2005 Third Quarter Results
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During 2005, the Company expects to invest approximately $120.9 million in
capital expenditures, consisting of approximately $81.6 million in prison
construction and expansions, $20.6 million in maintenance capital expenditures
and $18.7 million in information technology.
SUPPLEMENTAL FINANCIAL INFORMATION AND INVESTOR PRESENTATIONS
The Company has made available on its website supplemental financial information
and other data for the three and nine months ended September 30, 2005. The
Company does not undertake any obligation, and disclaims any duty, to update any
of the information disclosed in this report. Interested parties may access this
information through the Company's website at www.correctionscorp.com under
"Financial Information" of the Investor section.
The Company's management may meet with investors from time to time during the
fourth quarter of 2005. Written materials used in the investor presentations
will also be available on the Company's website beginning November 4, 2005.
Interested parties may access this information through the Company's website at
www.correctionscorp.com under "Webcasts" of the Investor section.
WEBCAST AND REPLAY INFORMATION
The Company will host a webcast conference call at 2:00 p.m. Central Time (3:00
p.m. Eastern Time) today to discuss its 2005 third quarter financial results. To
listen to this discussion, please access "Webcasts" on the Investor page at
www.correctionscorp.com. The conference call will be archived on the Company's
website following the completion of the call. In addition, a telephonic replay
will begin today at 5:00 p.m. Central Time through 11:59 p.m. Central Time on
November 9, 2005, by dialing 1-888-203-1112, pass code 2872245.
ABOUT THE COMPANY
The Company is the nation's largest owner and operator of privatized
correctional and detention facilities and one of the largest prison operators in
the United States, behind only the federal government and three states. The
Company currently operates 63 facilities, including 39 company-owned facilities,
with a total design capacity of approximately 71,000 beds in 19 states and the
District of Columbia. The Company specializes in owning, operating and managing
prisons and other correctional facilities and providing inmate residential and
prisoner transportation services for governmental agencies. In addition to
providing the fundamental residential services relating to inmates, the
Company's facilities offer a variety of rehabilitation and educational programs,
including basic education, religious services, life skills and employment
training and substance abuse treatment. These services are intended to reduce
recidivism and to prepare inmates for their successful re-entry into society
upon their release. The Company also provides health care (including medical,
dental and psychiatric services), food services and work and recreational
programs.
FORWARD-LOOKING STATEMENTS
This press release contains statements as to the Company's beliefs and
expectations of the outcome of future events that are forward-looking statements
as defined within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from the statements made.
These include, but are not limited to, the risks and uncertainties associated
with: (i) fluctuations in the Company's operating results because of, among
other things, changes in occupancy levels, competition, increases in cost of
operations, fluctuations in interest rates and risks of operations; (ii) changes
in the privatization of the
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CCA 2005 Third Quarter Results
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corrections and detention industry, the public acceptance of the Company's
services and the timing of the opening of and demand for new prison facilities
and the commencement of new management contracts; (iii) the Company's ability to
obtain and maintain correctional facility management contracts, including as the
result of sufficient governmental appropriations and as the result of inmate
disturbances; (iv) increases in costs to construct or expand correctional
facilities that exceed original estimates, or the inability to complete such
projects on schedule as a result of various factors, many of which are beyond
the Company's control, such as weather, labor conditions and material shortages,
resulting in increased construction costs; and (v) general economic and market
conditions. Other factors that could cause operating and financial results to
differ are described in the filings made from time to time by the Company with
the Securities and Exchange Commission.
The Company takes no responsibility for updating the information contained in
this press release following the date hereof to reflect events or circumstances
occurring after the date hereof or the occurrence of unanticipated events or for
any changes or modifications made to this press release.
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CCA 2005 Third Quarter Results
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, December 31,
ASSETS 2005 2004
- ------------------------------------------------------------------------- ----------- -----------
Cash and cash equivalents $ 66,402 $ 50,938
Restricted cash 11,182 12,965
Investments 8,897 8,686
Accounts receivable, net of allowance of $2,059 and $1,380, respectively 173,787 154,288
Deferred tax assets 38,365 56,410
Prepaid expenses and other current assets 18,816 16,636
Current assets of discontinued operations -- 2,365
----------- -----------
Total current assets 317,449 302,288
Property and equipment, net 1,691,009 1,659,858
Investment in direct financing lease 16,520 17,073
Goodwill 15,425 15,563
Other assets 24,862 28,144
Non current assets of discontinued operations -- 152
----------- -----------
Total assets $ 2,065,265 $ 2,023,078
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------
Accounts payable and accrued expenses $ 157,940 $ 144,815
Income taxes payable 2,032 22,207
Current portion of long-term debt 21,871 3,182
Current liabilities of discontinued operations 1,801 2,061
----------- -----------
Total current liabilities 183,644 172,265
Long-term debt, net of current portion 964,236 999,113
Deferred tax liabilities 8,777 14,132
Other liabilities 20,843 21,574
----------- -----------
Total liabilities 1,177,500 1,207,084
----------- -----------
Commitments and contingencies
Common stock - $0.01 par value; 80,000 shares authorized; 39,552 and 35,415
shares issued and outstanding at September 30, 2005 and
December 31, 2004, respectively 396 354
Additional paid-in capital 1,501,592 1,451,885
Deferred compensation (6,431) (1,736)
Retained deficit (607,792) (634,509)
----------- -----------
Total stockholders' equity 887,765 815,994
----------- -----------
Total liabilities and stockholders' equity $ 2,065,265 $ 2,023,078
=========== ===========
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CCA 2005 Third Quarter Results
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
REVENUE:
Management and other $ 303,368 $ 283,833 $ 872,488 $ 835,018
Rental 999 971 2,955 2,874
--------- --------- --------- ---------
304,367 284,804 875,443 837,892
--------- --------- --------- ---------
EXPENSES:
Operating 226,006 216,034 664,353 634,066
General and administrative 14,352 12,328 40,477 35,350
Depreciation and amortization 15,315 13,969 44,132 39,950
--------- --------- --------- ---------
255,673 242,331 748,962 709,366
--------- --------- --------- ---------
OPERATING INCOME 48,694 42,473 126,481 128,526
--------- --------- --------- ---------
OTHER EXPENSES:
Interest expense, net 15,273 16,831 48,245 51,809
Expenses associated with debt refinancing and recapitalization
transactions -- -- 35,269 101
Other expenses 191 239 240 494
--------- --------- --------- ---------
15,464 17,070 83,754 52,404
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 33,230 25,403 42,727 76,122
Income tax expense (12,437) (8,769) (15,817) (29,412)
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 20,793 16,634 26,910 46,710
Income (loss) from discontinued operations, net of taxes -- 374 (193) 906
--------- --------- --------- ---------
NET INCOME 20,793 17,008 26,717 47,616
Distributions to preferred stockholders -- -- -- (1,462)
--------- --------- --------- ---------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 20,793 $ 17,008 $ 26,717 $ 46,154
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 0.53 $ 0.48 $ 0.71 $ 1.29
Income (loss) from discontinued operations, net of taxes -- 0.01 (0.01) 0.03
--------- --------- --------- ---------
Net income available to common stockholders $ 0.53 $ 0.49 $ 0.70 $ 1.32
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 0.52 $ 0.42 $ 0.67 $ 1.16
Income (loss) from discontinued operations, net of taxes -- 0.01 -- 0.02
--------- --------- --------- ---------
Net income available to common stockholders $ 0.52 $ 0.43 $ 0.67 $ 1.18
========= ========= ========= =========
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CALCULATION OF ADJUSTED FREE CASH FLOW
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
2005 2004 2005 2004
-------- -------- -------- --------
Pre-tax income available to common stockholders $ 33,230 $ 25,777 $ 42,534 $ 75,566
Expenses associated with debt refinancing and recapitalization
transactions -- -- 35,269 101
Income taxes paid (171) (693) (15,636) (3,341)
Depreciation and amortization 15,315 13,969 44,132 39,950
Depreciation and amortization for discontinued operations -- 39 186 113
Income tax (benefit) expense for discontinued operations -- 197 (101) 556
Amortization of stock-based compensation reflected in G&A expenses 510 -- 1,174 --
Amortization of debt costs and other non-cash interest 1,329 1,546 4,034 5,220
Maintenance and technology capital expenditures (6,628) (11,145) (24,879) (35,653)
-------- -------- -------- --------
ADJUSTED FREE CASH FLOW $ 43,585 $ 29,690 $ 86,713 $ 82,512
======== ======== ======== ========
CALCULATION OF EBITDA AND ADJUSTED EBITDA
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- -----------------------
2005 2004 2005 2004
------- -------- -------- ---------
Net income $20,793 $ 17,008 $ 26,717 $ 47,616
Interest expense, net 15,273 16,831 48,245 51,809
Depreciation and amortization 15,315 13,969 44,132 39,950
Income tax expense 12,437 8,769 15,817 29,412
(Income) loss from discontinued operations, net of taxes -- (374) 193 (906)
------- -------- -------- ---------
EBITDA $63,818 $ 56,203 $135,104 $ 167,881
Expenses associated with debt refinancing and recapitalization
transactions -- -- 35,269 101
------- -------- -------- ---------
ADJUSTED EBITDA $63,818 $ 56,203 $170,373 $ 167,982
======= ======== ======== =========
CALCULATION OF ADJUSTED DILUTED EARNINGS PER SHARE
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2005
------------------------
Net income available to common stockholders $ 26,717
Expenses associated with debt refinancing and recapitalization transactions 35,269
Income tax benefit for expenses associated with debt refinancing transactions (13,056)
--------
Adjusted net income available to common stockholders 48,930
Interest expense applicable to convertible notes, net of taxes 124
--------
Diluted adjusted net income available to common stockholders $ 49,054
========
Weighted average common shares outstanding - basic 38,194
Effect of dilutive securities:
Stock options and warrants 1,174
Convertible notes 727
Restricted stock-based compensation 102
--------
Weighted average shares and assumed conversions - diluted 40,197
========
ADJUSTED DILUTED EARNINGS PER SHARE $ 1.22
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTE TO SUPPLEMENTAL FINANCIAL INFORMATION
Net income excluding special charges, EBITDA, Adjusted EBITDA and Adjusted free
cash flow are non-GAAP financial measures. The Company believes that these
measures are important operating measures that supplement discussion and
analysis of the Company's results of operations and are used to review and
assess operating performance of the Company and its correctional facilities and
their management teams. The Company believes that it is useful to provide
investors, lenders and security analysts disclosures of its results of
operations on the same basis as that used by management.
Management and investors review both the Company's overall performance
(including GAAP EPS, net income, and Adjusted free cash flow) and the operating
performance of the Company's correctional facilities (EBITDA and Adjusted
EBITDA). EBITDA and Adjusted EBITDA are useful as supplemental measures of the
performance of the Company's correctional facilities because they do not take
into account depreciation and amortization, tax provisions, or with respect to
Adjusted EBITDA the impact of the Company's financing strategies. Because the
historical cost accounting convention used for real estate assets requires
depreciation (except on land), this accounting presentation assumes that the
value of real estate assets diminishes at a level rate over time. Because of the
unique structure, design and use of the Company's correctional facilities,
management believes that assessing performance of the Company's correctional
facilities without the impact of depreciation or amortization is useful. The
calculation of Adjusted free cash flow substitutes capital expenditures incurred
to maintain the functionality and condition of the Company's correctional
facilities in lieu of a provision for depreciation; Adjusted free cash flow also
excludes certain other non-cash expenses that do not affect the Company's
ability to service debt.
The Company may make adjustments to GAAP net income, Adjusted EBITDA and
Adjusted free cash flow from time to time for certain other income and expenses
that it considers non-recurring, infrequent or unusual, such as the special
charge in the preceding calculation of earnings per diluted share excluding
special charges, even though such items may require cash settlement, because
such items do not reflect a necessary component of the ongoing operations of the
Company. Other companies may calculate EBITDA, Adjusted EBITDA and Adjusted free
cash flow differently than the Company does, or adjust for other items, and
therefore comparability may be limited. EPS excluding special charges, EBITDA,
Adjusted EBITDA and Adjusted free cash flow are not measures of performance
under GAAP, and should not be considered as an alternative to cash flows from
operating activities or as a measure of liquidity or an alternative to net
income as indicators of the Company's operating performance or any other measure
of performance derived in accordance with GAAP. This data should be read in
conjunction with the Company's consolidated financial statements and related
notes included in its filings with the Securities and Exchange Commission.
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